Murray Ruggiero Jr.
Vice President of Research and Development
Program(s) Developed: Multiple Trading Systems
Interview Date: August, 2013
Interviewed by John F. Gallwas, Founder of Striker Securities, Inc.
Since the early 1990's, Murray Ruggiero Jr., after earning a degrees in physics and computer science, he has been a pioneer in using neural net and artificial intelligence to develop trading systems for the financial markets.
Moreover, as a contributing editor for "Futures Magazine" since 1994, he continues to be on the cutting edge of markets and their ever-changing nature. He has written on a broad range of technical trading methodologies not just artificial intelligence. His diverse technical background is one of his biggest strength's.
He is the designer of TradersStudio. TradersStudio is a state of the art trading system development platform and chief systems designer market analyst at Tuttle Wealth Management with almost 100 million dollars under management. He also designed systems available to individual traders.
John F. Gallwas: How did you get into the financial markets from having a degree in physics and computer science?
Murray Ruggiero Jr: My first job after receiving my Physics degree was working for a subcontractor of Pratt Whitney in the engineering department. My job was to develop Failure Mode and effect analysis (FMEA) for jet engine components. In FMEA, we analyzed what would happen if a given component within the jet engine failed; ensuring that if one component failed the plane wouldn't crash.
When you have a degree in Physics you spend a lot of time programming and once I was out of school I did a lot of consulting work in programming; so I decided to go ahead and get a computer science degree. Once I got my undergraduate degree in computer science I co-founded Promised Land Technology, a company in which I invented a methodology for embedding a neural network into a spreadsheet. Many of our customers wanted to use our product Braincel to forecast the markets. I began my study of the markets to help them in about 1990.
John F. Gallwas: How did you get from Neural Network to write so much about many classical trading methods?
Murray Ruggiero Jr: After I left Promised Land, I realized that in order to have artificial intelligence work on predicting the markets, you are required not to treat the markets 100% like a signal processing problem which is what most engineers do when they try to analyze the markets. I realized that there was a big resource of prior art in technical analysis; some of which was being used to trade successfully and this would serve me well to understand this base. When interest in neural networks died in the late 1990's my career still continued due to my learning this broad knowledge base in classical technical analysis and its application using my scientific background.
John F. Gallwas: You have written over 180 articles in "Futures Magazine" some of which was pretty cutting edge. What have you developed and shared with the readers of Futures Magazine, are you most proud of?
Murray Ruggiero Jr: I feel the thing I am most proud of is my work on intermarket analysis. I think in 1993, it all started, when I first read John Murphy's classic book on intermarket analysis, published in 1991 and tried to see if these relationships really worked.
I was on Tech Talk during the 1990's several times, showing 100% mechanical strategies based on Murphy's original work. I also developed tools and found my own relationships by trying different things, for example finding silver was a better predictor of the long bond than gold or the CRB.
In John Murphy's first book, published in 1991 on Intermarket analysis, he used the crash of 1987 to lay out his intermarket hypothesis. What I did was use these relationships to develop 100% mechanical systems to trade using intermarket analysis. I first published these systems around 1994. What I noticed is many of these system did not hold up as well as I would like. In about 1997 I had a breakthrough and developed a simple method I called intermarket divergence.
For positively correlated markets:
- If (Intermarket is in uptrend) and (traded market in downtrend) then buy
- If (Intermarket is in downtrend) and (traded market is in uptrend) then sell
You can use various concepts to define an up and down trend. In most of my work I used price relative to a moving average.
For negatively correlated market we have as follows:
- If (Intermarket is in uptrend and traded market in uptrend) then sell
- If (Intermarket is in downtrend and traded market is in downtrend) then buy
This basic technology is the core for many of my trading strategies; as intermarket correlations are on different scales so only when we have divergence do we know that we have an arbitrage opportunity. My early systems used trend of the intermarket and did not require divergence, these systems did not hold up as well in the future. I have continued to develop these concepts over the years for example relationships between two intermarkets; one positively correlated, one negatively correlated and the market we are trading. In addition, I have researched how you handle when these intermarket decouple, when the relationships are not working. During this time we want to make sure that the system does not implode. My work on Jet Engine Failure Mode and Effect analysis has helped me develop a type of FMEA for my trading strategies, especially my intermarket ones.
John F. Gallwas: What can you trade with intermarket analysis, just bonds or stock indexes?
Murray Ruggiero Jr: If you deeply study intermarket relationships, you can trade a variety of things besides trade bond and stock indexes You can use intermarket analysis to trade metals, currencies, ETF's, and energy markets. Believe it or not intermarket relationships work to even trade things like feeder cattle. You can even trade multiple timeframes, from monthly to weekly to daily and intra-day I have used from 45 minute data down to 5 minute bars to develop these intraday intermarket based systems.
John F. Gallwas: Can you give me an example of intra-day intermarket system which is currently being traded?
Murray Ruggiero Jr: Yes, I have a gold system which is a swing system as it holds overnight but it uses 45 minute bars. It uses two intermarkets. It can turn off the intermarket relationships when they are not working well; during which time it switches to trend following mode. The system has done very well since I released it in April 2012.
John F. Gallwas: As this is an educational piece, what guidelines do you suggest our readers to use when they evaluate a system developers program?
Murray Ruggiero Jr: The key in developing trading system is to start with a valid premise. You want to develop your system based on this premise and ask yourself whether the tests you make conform to this premise. It is imperative for your system to be profitable as well as it should fit within your premise. If it's profitable but does not fit your premise it can't be trusted. If your evaluating a system you want to make sure that slight changes in parameters do not cause large changes in performance. You want the parameter space of a system to have relatively broad peaks. I discuss this concept as it related to intermarket analysis in my paper I published at Cifer conference in 2012.
John F. Gallwas: As Vice President of "Traders Studio Inc", a registered CTA and NFA member, what services does Traders Studio provide that may be of interest to our readers?
Murray Ruggiero Jr: I developed TradersStudio for my own trading and money management business. The cost of developing something like TradersStudio is like a million dollars, hence the need to sell this software and some of my systems to finance this. TradersStudio is currently off line so my intraday research and systems run in TradeStation. I also research technologies like cycle, neural networks and genetic algorithms; and develop add-ins for both TradersStudio and TradeStation which I make available to end users. I also lease and sell many of the systems even the ones with which we ourselves manage money with.
John F. Gallwas: Is there anything in your "What's New" category that you can share with us at this time?
Murray Ruggiero Jr: Yes, I am developing so many new technologies. I have a bot technology which uses an algorithm I developed to select the best and most robust set of parameters in a walk forward manner and even combined multiple strategies applying walk forward testing. This is in addition to a new research in artificial intelligence and cycle analysis. The point is as computer technology improves and now with multicore software and the cloud, soon even individual traders will have the technology which once was available only to large institutions.
This interview is for informational purposes only and is not intended to be
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